24 january 2019

Tax base adjustment

The Tax Code of the Republic of Belarus introduces a new regulation which allows for wide possibilities of finding grounds for additional tax payments.
If the main purpose of a business transaction is non-payment/partial payment of taxes and (or) offset, refund of tax, the tax base for such transaction is subject to adjustment on the basis of a tax inspection results. 

Such grounds are determined taking into account the evidence collected by the inspection authority and (or) produced by the law enforcement agencies.
This regulation is highly likely to replace the leverage over business when the Presidential Decree № 488 is annulled.

Criteria for the parties to be recognised as related 

 New criteria for recognition of related parties are introduced (Article 20 of the Tax Code): organizations whose founders/members are related individuals (connected by marriage, blood relationship in accordance with the laws) holding at least 20% of the shares in these organizations. Example: one spouse holds 30% of the shares in a company А, and the other spouse holds 20% of the shares in a company B. According to the new regulations companies А and B are recognised as related and subject to transfer pricing and thin capitalisation rules.

The courts is granted a right to recognise persons as related on other grounds than those provided for in the Tax Code, if relations between such persons directly influence and/or can influence their business conditions and/or economic results.

Transfer pricing

• annual threshold amount of controlled transactions is increased (for the most common transactions - from 100 000 BYN to 400 000 BYN);
• possibility of 20% deviation from market prices is excluded;
• the list of controlled real estate transactions is changed (only transactions with related parties and persons applying special tax regimes shall be subject to control);
• transfer pricing documentation shall be filed in the form prescribed by the Ministry for Taxes and Levies of the Republic of Belarus;
• some classes of taxpayers are entitled to file an application with the Ministry for Taxes and Levies of the Republic of Belarus for entering into advance pricing agreements.

Tax inspection

The Tax Code introduces a new ground for conducting a field tax inspection: reorganization of a taxpayer.
No tax inspections are conducted during liquidation, if during liquidation of an organization or termination of activity of an individual entrepreneur there are no flow of funds on bank accounts or digital wallets and/or there have been no such accounts or digital wallets within 36 consecutive months prior to liquidation proceedings.

Recognition of an individual as a tax resident in Belarus

According to the amended Tax Code, if an individual is not a tax resident of any country, he/she will be recognised as a tax resident of the Republic of Belarus, provided that he/she has Belarusian citizenship or a residence permit in Republic of Belarus.

Limited expenses

Concept of limited expenses is introduced. Expenses on management services provided by individual entrepreneurs or organizations applying special tax regimes are limited by 8-fold amount of average salary across an organization.
Limited expenses include a special type of so called other expenses, which list is exhaustive and enshrined in the Tax Code. For instance, such expenses comprise: payments to the board members; representation expenses; compensation for using private vehicles/rent; membership fees; interest on overdue loan and credit payments.

The total amount of other expenses to be recognised for tax purposes is limited to 1% of the revenue, VAT inclusive. 

Thus, some expenses, which were not deductible before, will be deductible (for instance, interest on overdue loan). On the other hand, some expenses, which were deductible without limits before (for instance, representation expenses, provided there were confirming documents) will be subject to limitation from 2019.

Investment deductions

Investment deductions are increased: for buildings, constructions, transfer devices - from 10% to 15% of the initial value, and for machinery and equipment - from 20% to 30%.

Thin capitalisation rules  

The uniform rules on determining controlled debt to both Belarusian and foreign founders (their affiliates) are prescribed: as of now, structure and limit of controlled debt are the same for Belarusian and foreign founders(their affiliates), and the debt-to-equity ratio should not exceed 3:1.

Dividend tax

Personal income tax rates of 6% and 0% are established, provided that the profits were not distributed between the shareholders-residents of Belarus within previous 3 or 5 calendar years, respectively.

Interpreting this provision, distribution of profits between non-residents does not prevent from applying the reduced rates.

Indexation of limits

Revenue and income criteria for individual entrepreneurs to be recognised as VAT payers are expanded from 40 thousand Euro to 420 thousand Belarusian rubles (BYN).
Gross revenue criteria for application of simplified tax system is expanded:
For organizations with VAT – from 1 851 100 BYN to 1 949 208 BYN.
For organizations without VAT – from 1 270 100 BYN to 1 337 415 BYN.
For individual entrepreneurs – from 202 700 to 420 000 BYN.

Simplified tax system
From 2019 organizations and individual entrepreneurs who carry out transactions with digital characters (tokens) for Belarusian rubles, foreign currency, electronic money, and exchange them for another digital characters (tokens) are no longer entitled to apply simplified tax system.

From 2019 the amount of expenses reimbursed to a letter (lessor, landlord) for purchasing utility services when letting out real estate is not included in gross revenue.

Real estate tax and land tax 

Construction in progress beyond the completion date is excluded from the items subject to real estate tax and land tax with increased rates.
When calculating real estate tax and land tax, from the moment of putting capital construction into operation (constructed after 1 January 2019) rates from 0,2 to 0,8 will apply.

The Tax Code cancels the right of local Councils of Deputies to increase up to tenfold the rates of real estate tax on unused or inefficiently used real estate and the rates of land tax on sites occupied by such real estate.

The 10-times coefficient to the rates of land tax on sites provided for temporary use, but not returned by the established deadline, sites occupied without permission or used in a way other than their intended purpose will not apply from 2019. 

Tax on the profits of foreign organizations 

A quarter, instead of a month, will be deemed the tax period for profits tax.

Filing of individual income tax returns by individuals

Individuals ARE REQUIRED to submit tax returns with respect to the following income received in 2018:
1. from sale or other disposal (exchange, rent) of certain property on a paid basis (for instance, the second car, more than one real estate item, etc.);
2. by way of a gift from individuals above the established limits;
3. from leasing out residential and non-residential premises above the established limits;
4. income received from abroad or abroad;
5. by way of a refund when housing construction is terminated;
6. by paying off (paying off in advance) housing bonds by money;
7. other income (Article 219 of the Tax Code)
In certain situations, it is possible to refund the tax paid when filing the tax return.

From 2019 the deadline for filing tax returns is extended to 1 April 2019. The tax return can be filed with any tax authority regardless of the place of registration of the taxpayer. The due date for tax payment is extended to 3 June 2019.

Audit company UHY BusinessCollegia LLC provides with advice and assistance in preparing and filing income tax returns.
Brief review is prepared by 
Yuriy Kardymon
Tax Advisor of UHY BusinessCollegia LLC